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On June 22, the U.S. Senate Budget Committee unveiled the draft Better Care Reconciliation Act of 2017 (BCRA), which would repeal and replace the Affordable Care Act (ACA) and radically restructure the Medicaid program. The BCRA is the Senate companion version of the House’s American Health Care Act (AHCA) that narrowly passed on May 4. Although Senate Majority Leader Mitch McConnell, R-Ky., had hoped to vote on the BCRA before the July recess, the bill did not have sufficient support to move forward. Negotiations continue with leaders now aiming for a vote before the August recess.

Voting Dynamics

Republicans are seeking to use the budget reconciliation process to pass this legislation because of the slim 52-48 majority they hold in the Senate. While bills typically require at least 60 votes in the Senate to prevent a filibuster, legislation considered under the budget reconciliation rules requires only a simple majority (51 votes) to pass. For legislation to pass via reconciliation, however, its language must meet the requirements of certain parliamentary rules that require, among other things, that the bill’s provisions be germane to the federal budget. Because Republicans hold 52 Senate seats, they can lose the votes of no more than two GOP Senators and still pass the bill.

At this point, multiple Republican Senators have expressed opposition or serious reservations about the BCRA as currently drafted. Conservatives, including Ted Cruz of Texas, Ron Johnson of Wisconsin, Mike Lee of Utah and Rand Paul of Kentucky, do not believe the BCRA goes far enough in repealing the ACA. Moderate Senators are concerned with the BCRA-associated high number of Americans projected to lose insurance coverage, deep cuts in Medicaid funding and provisions targeting women’s health. They include Dean Heller of Nevada, Susan Collins of Maine, Shelly Moore Capito of West Virginia, Bill Cassidy of Louisiana, Ben Sasse of Nebraska, Rob Portman of Ohio and Lisa Murkowski of Alaska. None of the chamber’s Democratic members are expected to vote in favor of the legislation.

Congressional Budget Office (CBO) Score

On June 26, the CBO released its score of the BCRA. The CBO estimates that the BCRA would leave 22 million people uninsured over 10 years relative to the number uninsured under current law. The CBO also estimates that the BCRA would reduce the federal deficit by US$321 billion over 10 years, compared with an estimated US$133 billion in savings over the same period under the House-passed AHCA. Procedural rules require the Senate version of the bill to achieve at least the same savings as the House-passed bill.

The BCRA’s estimated savings come largely from reductions in Medicaid program outlays. According to the CBO, spending on Medicaid would decline by 26 percent in 2026 compared to current law. The CBO estimates that the BCRA would increase individual market coverage premiums before 2020 but also that, on average, premiums would to go down in future years compared with projections under current law.

Summary of Certain BCRA Discussion Draft Provisions

Premium Tax Credits: The BCRA would retain the ACA’s existing premium tax credits for 2018 and 2019. Starting in 2020, it would modify several aspects of the credits. For example, the income eligibility criterion would change to individuals with household income of up to 350 percent of the federal poverty level (FPL) instead of 100 to 400 percent of FPL as under current law. The tax credit also would transition to advanceable, refundable credits based on age and income. The BCRA would make the following additional changes to the tax credits:

Benchmark Plan for Calculating Premium Tax Credit Amounts: The ACA’s benchmark for calculating premium tax credit amounts is the second-lowest-cost (silver) plan. The BCRA would replace that with a new standard, the “applicable median cost benchmark plan,” which would be tied to an actuarial value (AV) of 58 percent instead of an ACA silver plan’s 70 percent AV and would be based on the median premium of all qualified health plans in the individual market in a given rating area.

Minimum Essential Coverage (MEC): The BCRA would strike the requirement that employers must provide “affordable” coverage, as defined at 26 U.S.C. § 36B(c)(2)(C), for the employer-sponsored plan to meet the MEC requirement.

Hyde Amendment Restrictions: Starting in 2018, the BCRA would modify the qualified health plan (QHP) definition to prevent QHP issuers from offering abortion coverage except in cases of rape, incest or to save the life of the mother. It is unclear whether this provision will be determined to comply with the Senate’s parliamentary rules for budget reconciliation. QHP abortion coverage is currently governed by ACA section 1303.

Cost-Sharing Reduction (CSR) Payments: The BCRA would fund the ACA’s CSR payments for benefit years 2018 and 2019. The CSR payments would be repealed in 2020.

Substance Use Treatment Funding: The BCRA would provide US$2 billion in Department of Health and Human Services funding for fiscal year 2018 for state grants to support substance use disorder treatment and recovery services. In contrast, the House-passed version of the AHCA provides US$15 billion over the course of 10 years to address substance abuse, as well as mental health and maternity coverage. A number of Senators, including Sen. Portman, have expressed SIDLEY UPDATE Page 3 concerns that the proposed BCRA funding is inadequate to address the opioid crisis, particularly when coupled with included Medicaid cuts.

ACA Taxes: The BCRA makes changes to a number of ACA taxes and penalties; for example:

Employer and Individual Mandate Penalties: The employer and individual mandate penalties would be zeroed out retroactive to Dec. 31, 2015. Under an updated version of the BCRA released on June 26, the draft also includes a provision permitting insurers to impose a six-month waiting period for individuals who do not maintain continuous coverage, for the intended purpose of incentivizing adults to enroll and maintain coverage.

Other ACA Taxes: The BCRA would repeal the medical device excise tax, the branded prescription drug tax, the health insurance tax, the tax on highly compensated insurance executives, the Medicare surcharge tax, the net investment tax, the Medicare tax on highincome taxpayers and the tanning tax. Additionally, the bill would postpone the effective date for the “Cadillac tax” to 2025.

Health Savings Account (HSA) and Flexible Spending Account (FSA) Provisions: The BCRA discussion draft would end the exclusion of coverage for over-the-counter medications from HSA or FSA funds, allow spouses to make catch-up contributions to the same HSA, permit individuals to use HSA funds to cover expenses incurred up to 60 days before HSA coverage becomes effective, increase the allowable annual contribution to an HSA and repeal the ACA’s annual $2,500 cap on FSA contributions.

Small Business Tax Credits: The BCRA would phase out the ACA’s small business tax credit in 2020.

Tax Treatment of Small Business Health Plans: The BCRA would amend the IRS code to allow small business health plans to be treated as a group health plan.

Stabilization Funding: The BCRA creates two stability funds.

Short-Term Funding for Insurers: In the short term, the BCRA would provide US$15 billion in 2018 and 2019 and $10 billion in 2020 and 2021 to insurers to fund short-term reinsurance pools.

Longer-Term Funding for States: The BCRA would also provide more than US$60 billion in longer-term funding to states between 2019 and 2026 to help lower premiums and out-of-pocket costs and stabilize the individual health insurance market.

Medicaid:

Medicaid Expansion: The BCRA proposes to phase out the enhanced federal match for the Medicaid expansion population over a period of three years starting in 2021. In contrast, the House-passed AHCA would end enhanced expansion funding in 2020.

Per Capita Caps: Similar to the House-passed AHCA, the BCRA would fundamentally change the traditional Medicaid program by transitioning it from an open-ended entitlement to a system based on a capped, per-enrollee allotment starting in 2020. Certain high-risk populations, including children with disabilities, would not be subject to the per capita caps.

Medicaid Block Grants: States would also have the option of receiving Medicaid funding through a block grant starting in 2020.

Safety-Net Funding for Nonexpansion States: The BCRA would provide US$10 billion in safety-net funding over five years to states that did not expand Medicaid under the ACA.

Work Requirements: The BCRA allows states to establish work requirements for nondisabled, nonelderly, nonpregnant beneficiaries starting on Oct. 1, 2017.

Medicaid and Children’s Health Insurance Program Quality Performance Bonus Payments: The BCRA would grant quality bonus payments to states that keep Medicaid spending under caps described in the discussion draft. These bonus payments would be available from 2023 to 2026.

Optional Assistance for Certain Inpatient Psychiatric Services: The BCRA would provide states with the option of providing Medicaid coverage of “qualified inpatient psychiatric hospital services” to individuals over age 21 and under age 65. Under this provision, qualifying stays cannot exceed 30 consecutive days in a month or 90 total days in any calendar year. This provision would take effect on Oct. 1, 2018.

Section 1332 State Innovation Waivers: The BCRA would provide US$2 billion in federal funding to incentivize states to apply for 1332 waivers and would broaden waiver authority. For example, under the BCRA, a state could apply to waive the essential health benefits requirements or provide premium subsidies for off-exchange coverage.

Medical Loss Ratio (MLR): The BCRA would sunset the ACA’s current MLR requirements starting Jan. 1, 2019, and allow states to set their own MLR requirements in later years.

Age Rating: The BCRA would change the ACA’s current permissible age rating ratio (3-1) to 5-1 starting Jan. 1, 2019. States would also have the option to set their own age rating ratios.

Additional Funding Changes: The BCRA would:

defund the Prevention and Public Health Fund in 2018, a year ahead of the proposed; phase-out included in the House-passed version of the AHCA;

provide US$422 million to community health centers;

prevent Planned Parenthood from receiving Medicaid funding for one year; and

provide US$500 million to implement the legislation.

Small Business Health Plan Risk-Sharing Pools: The BCRA would allow fully insured group health plans to pool together to share risk. The House-passed AHCA does not include similar language, but this section appears to be somewhat similar to language in the Small Business Health Fairness Act of 2017 (HR 1101), which passed the House in March 2017.